How Do Financial Advisors Get Paid?

On this segment of Better Money on WFSB, Eric Hogarth, CFP® and Kara Sundlun discuss financial advisors and the ways they are paid. While some advisors have a salary set by the firm that employs them, there are four main ways they get paid:

Fee Only

This is for someone who is managing and investing their own money but is looking for some advice. They usually pay the advisor an hourly fee or a flat rate.

Commissions

Advisors receive a percentage of the client’s investments as commissions. The negative aspect of this is that some advisors may get you to invest in something that will give them the largest profit, not necessarily doing what is best for you.

Fees based on the size of your account

Advisors are paid based on how the client’s account is performing. If the account goes down, the advisor makes less money. If the account goes up, the advisor is paid more.

Fees based on the percentage of account & percentage of profits

This is the most expensive option and usually occurs when the client is investing millions of dollars in just one account. The client pays a management fee, a percentage of what is in the account, no matter what. However, if the account goes up, the client also pays a percentage of the gain as well as the management fee.